DPOS

Delegated Proof of Stake (DPoS)

The Delegated Proof of Stake (DPoS) consensus mechanism is an increasingly popular alternative to PoW and was first introduced by the founder of BitShares to improve network efficiency and scalability over Bitcoin’s PoW mining. DPoS essentially implements a reputation system with voting and an election process amongst stakeholders to reach network consensus in a digitally democratic manner. Generally, stakeholders in a DPoS-based blockchain system vote for super-representative roles, such as “Witnesses” and “Delegates”, as a relatively small (compared to the total number of users with stakes in the network) and fixed number of people to perform critical tasks like validating transactions and generating blocks. Each stakeholder has a number of votes proportional to the tokens they own and may choose to delegate another stakeholder to cast their votes on their behalf.

The voting process selects the top N delegates, or also called “Witnesses” in Bitshares, (N being agreed upon by the network to ensure decentralization, e.g., 100 witnesses) based on the total votes received. Witnesses take turns producing and validating blocks and an even smaller number of Witnesses (such as 20) are rewarded with transaction fees for their service. This approach creates competitiveness of the role and deters fraudulent behavior. Voting is also an ongoing process such that any malicious or poorly-performing (due to missed blocks) witness can be voted out of their role at any given time.

A number of popular cryptocurrency networks have successfully implemented DPoS, such as BitShares, EOS , Steem, and Cardano. Similar to PoS, DPoS offers more efficient transaction processing and a much lower requirement on computing hardware than PoW. In its existing deployments, DPoS has created more decentralized networks than
its PoS predecessor, owing to its continuous election process that involves users even with the minimum token ownership. The downside to DPoS is its long-term sustainability as its governance relies heavily on users to actively elect a small set of delegates, which may be vulnerable to centralization overtime due to smaller stakeholders forfeit voting rights and/or tokens become poorly distributed.